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Exports to Unverified Parties Get Improved Oversight Under BIS Rule

Thursday, December 19, 2013

Sandler, Travis & Rosenberg Trade Report

The Bureau of Industry and Security has issued a final rule that, effective Jan. 21, 2014, will amend the Export Administration Regulations regarding the Unverified List. BIS states that these changes will enhance its ability to verify the bona fides of parties to exports, reexports or transfers (in-country) of commodities, software and technology subject to the EAR and provide increased visibility into such transactions involving persons whose bona fides cannot be verified.

The UVL lists persons in foreign countries who were parties to past export transactions with respect to which pre-license checks or post-shipment verifications could not be conducted for reasons outside the control of the U.S. government, including lack of cooperation by the host government authority, the end user or the ultimate consignee. The participation of a person listed on the UVL in any proposed transaction raises a red flag for purposes of the “Know Your Customer” guidance, thereby imposing an affirmative duty on exporters to inquire, verify or otherwise satisfy themselves that the transaction does not involve a prohibited proliferation activity and does not violate other provisions of the EAR.

This final rule makes the following changes.

- Lack of cooperation by a foreign party is removed as a basis for revising the UVL; instead, foreign parties whose lack of cooperation prevents the accomplishment of an end-use check may be added to the Entity List.

- The criteria for listing persons on the UVL, including examples of actions that could result in such listing, are included in the EAR. Such examples include (a) the subject of the check is unable to demonstrate the disposition of items during an end-use check, (b) the existence or authenticity of the subject of an end-use check cannot be verified because, among other things, the subject cannot be located or contacted, or (c) lack of cooperation by the host government authority.

- Affiliation with a person on the UVL is no longer considered as a basis for adding foreign persons to the UVL without further substantiation (e.g., conduct of an end-use check at the affiliate).

- Before proceeding with exports, reexports and transfers (in-country) involving items that are subject to the EAR but do not require a license (NLR), exporters, reexporters and transferors must obtain from any party to such transaction that is listed on the UVL a statement in which that party certifies the end use, end user and country of ultimate destination of those items and consents to an end-use check by the U.S. government, which may cover any transaction to which that person was a party for items subject to the EAR in the last five years. BIS has removed a proposed requirement that this statement also include an agreement for a pre-license check because no license is required for NLR goods.

- Exporters must file an Automated Export System record for all exports of tangible items (but not intangible technology or software) subject to the EAR involving a party or parties to the transaction who are listed on the UVL, regardless of value or destination. Previously an AES filing was only required if an export license was also required or if the transaction was above a certain value.

- License exceptions are not available for exports, reexports, and transfers (in-country) involving a party or parties to the transaction who are listed on the UVL.

- The UVL, the conditions it imposes, the criteria for revising it and the procedures to request removal or modification of a UVL entry are added to the EAR.

[The narrative portion of this rule states that all persons previously listed on the UVL are being removed, and the regulatory text listing the UVL includes no entries and states only that it is “reserved.” However, BIS sources did not respond by press time to inquiries for further information.]